TradFi PnL Calculation: Contract Size, Tick, Currency

Quick Answer

Let’s assume that you purchased an item for $100, and after a while, you decided to sell the same asset for $150. You have made a profit. If, for any reason, you sold for $95 or less, you have made a loss. TradFi PnL answers one question: did you close with more than you started with? 

Major Takeaways

• Price movement and position size determine your profit or loss after each trading session.

• Normally, a single contract represents many units of an asset, so it’s extremely important to confirm its size before engaging in any form of trading. 

• Your final outputs, while they may look like the result of price movements alone, are what you get after trading costs are deducted. 

The Inputs, Step by Step: Entry, Exit, Size, and Currency

The age-old concept of buying and selling assets for profit is not new. It has followed a similar pattern: if you buy a smaller amount of an asset, you’re bound to make smaller profits or losses, and it goes the same way if you buy a very large quantity. This theory applies to every financial market, and TradFi is no exception.

As far as commodity contracts are concerned, you’re buying agreements that are linked to instruments like Gold and Oil and are forms of price-based trades only. This means you’re not actually owning these instruments in any way.

So when you place a trade, a clear trading record will feature: 

• Your ENTRY price is the price at which you opened a position or entered a trade in the market.

• Your EXIT price, indicating the price at which you decided to close the trade. 

• The total Size of your trade, which gives you an overview of the number of contracts you have traded. 

• Your final settlement currency, the native currency in which your result will be displayed.

If you took so many trades over a single trading session that you are unable to pinpoint your exact entry price, you can use your average entry price, which will be displayed in your trading record, to figure it out. 

Contract Size and Tick Value

No matter how deep you are into the crypto market, you still somehow always check the quantity of the coins you’re buying. The exact same thing applies to contracts in TradFi; before you get involved at all, the first thing you have to verify is what each contract stands for. To further illustrate, let’s say a single oil-linked contract equals 10 barrels. Trading two contracts, however, would mean you are trading 20 barrels, and it is of utmost importance to know that this does not in any way mean you possess physical oil in any form. 

While trading, you will also come across the word tick a lot, which simply means the smallest permissible price movement. What tick value does is basically tell you how much money a contract gains or loses when its price moves by one tick. You can find both the tick size and tick value in the contract details. Practically, a tick of $0.10 per barrel on a 10-barrel contract equals $1. These figures are illustrative only, as each real product carries its rules and sizes.

Calculating Profit and Loss on a Long Position

To go long on a TradFi trade means you’re projecting that the price of the instrument you’re trading will experience an increase. What this goes to mean is simply that you open an oil-linked trade at something around $50 per barrel, after which you close the trade at $53. This means you have made $3 on every barrel. In application to our 20-barrel example, this will translate to $60 profit prior to the removal of trade costs. 

However, it’s very important to note that you’re also bound to lose $60 if the price moves the other way.

Calculating Profit and Loss on a Short Position

As far as a short position is concerned, you’re projecting that the price of an asset will fall. If the asset somehow rises, it will incur a loss. So what that will mean is that if an instrument that you shorted at $50 goes to $53, you would incur a loss of $60, using our last 2 contracts example.

So it’s important to note that you can not only make money from the price of an asset rising; you can also make money from predicting its potential decrease. And if the price of the instrument were to appreciate by this distance, losing money is inevitable. If you're finding it hard to grasp these concepts, a review of this long and short positions guide should help.

Why Your Figure Differs: Leverage, Fees, and Margin Risk

The major reason why your total profit or loss would differ is always due to compulsory payments like trading fees and, in some cases, holding charges. So, for instance, if you made $60 on a trade, you might pay a fee of up to $6 in charges. 

Moving to leverage and margin risk, leverage is a way to increase your position size with your initial deposit, which is known as your margin. Let’s say the worth of a contract is $10; with 10x leverage, it can be worth up to $100, which means a 10% increase would give you an extra $10 in profits, bringing your balance to $20 before trading fees. However, this also applies: if any loss is incurred, an adverse price move of roughly 1 divided by the leverage (10% at 10x) would consume the entire $10 margin before fees. Liquidation can happen earlier depending on the platform’s maintenance margin requirements.

Checking Profit and Loss on XXKK

To check your profit and loss on XXKK, you can start by checking XXKK Markets, after which you would review the contract details of the product you have in mind. When this is achieved, you can then go ahead to make sure that the trade size, tick value, contract size, and settlement charges are how you want them.

Once you have completed a trade, compare the closed trade with your entry. If you are eligible and the product is available to you, you can open an XXKK account to view PnL for supported positions.

Conclusion

Calculating your TradFi PnL is very similar to what you might have been doing in crypto. Now, you just need to familiarize yourself with certain TradFi terms that have been used here before you get started with trading.

FAQs

How is TradFi profit and loss calculated?

For a long position, TradFi PnL calculation uses (exit price - entry price) × contract size × number of contracts, minus fees.

What is contract size and why does it matter?

It helps you understand the value of each contract so you can have a clear understanding of the amount you are actually trading with.

What is tick value?

It is simply the total funds lost or gained on a single contract when its price makes a move by step.

Why does my profit and loss differ from the price move?

The price movement alone shows only the price change. Other factors like direction, trade size, and trading fees may have a direct effect on your PnL.